EMI, arguably the most famous corporate name in British music history, fell into the hands of its two largest rivals in two deals worth £2.5bn – a finale to a disastrous four-year period that saw the company loaded with debt by financier Guy Hands and rejected by bands like the Rolling Stones.

Universal Music, the world's biggest recorded music company, triumphed in an auction for EMI's recorded music business, with a £1.2bn bid for the label behind Coldplay, Tinie Tempah, and above all, the Beatles. Its offer was about £250m more than rival Warner Music.

It was the first part of a two-stage break-up of EMI, with the music publishing division, the home of the Motown catalogue, going to a consortium led by Sony – the world's second-largest music group. Sony reached agreement in principle to buy the division for £1.3bn, seeing off a bid from BMG Rights Management, a joint venture by Germany's Bertelsmann and the private equity group KKR.

EMI was put on the block by US bank Citigroup, which seized control of the company in February after it became clear that its owner, Guy Hands's company Terra Firma, could not contend with the £3.4bn debt taken on when he bought the business in 2007.

The double sale means that Citi will recoup about £2.5bn of its original loan. The bank also scooped a little over £200m in fees from the original loans to Terra Firma, meaning that its overall loss on those loans is a little less than £700m. Bank insiders characterised that as "a good result" given that EMI was bought at the height of the credit boom and is being sold in a downturn.

Universal's move for EMI means that the two companies will account for 38% of all recorded music sales worldwide. In some countries, such as France, that figure will be over 50%. Vivendi, Universal's owner, pledged to take on the regulatory risk in the deal. Chief executive Jean-Bernard Lévy said it would pay £1.1bn in 10 months' time and a further £100m on completion.

Simon Dyson, editor of industry newsletter Music & Copyright, said that he would "be very surprised" if regulators cleared the deal "without a lot of sell-offs" – and said that the overall market share level was perilously close to "the magic number for an outright no" for the Universal-EMI combination. Sony's deal for EMI's music publishing catalogue carries far fewer regulatory risks because Sony is a relatively small player.

Universal was quick to emphasise its commitment to EMI's musical heritage, with Lucian Grainge, the British chief executive of Universal Music, pledging to keep the historic Abbey Road studios where the Beatles and many other famous artists have recorded. "Abbey Road Studios are a symbol of EMI, a symbol of British culture, a symbol for the creative community of exactly what the company is and we are [now] part of," he said.

Universal said that it expected to save £100m a year in costs by combining operations with EMI. The company added that it was "very confident" that it would be able to get the deal through a regulatory investigation, which could take up to a year, saying that it expected "deep and fruitful dialogue".

To emphasise the point, Universal wheeled out Mick Jagger, who moved the Rolling Stones catalogue from EMI to Universal after a falling-out with Hands. The singer said Universal's move was "a very positive development and I particularly welcome the fact that EMI will once again be owned by people who really do have music in their blood".